Law Will Help Protect Businesses’ Trade Secrets

TRENTON – Legislation sponsored by Senator Nicholas P. Scutari (D-Union) to help protect the trade secrets of New Jersey businesses has been signed into law by Governor Chris Christie.

The New Jersey Trade Secrets Act (S-2456/A-921) establishes by law specific remedies available to businesses in the event that a trade secret – such as a formula, design, a prototype or invention – is misappropriated. The bill was based on legislation that exists in 46 states and the District of Columbia.

“The New Jersey Trade Secrets Act seeks to protect businesses operating in our state by creating severe legal consequences for individuals involved in the wrongful disclosure of confidential information,” said Senator Scutari. “Implementing this kind of safeguard for companies is critical to creating a climate in New Jersey in which businesses are able to prosper and grow.”

A trade secret is defined in the law as information, held by one or more people, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that: (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Under the law, misappropriation means the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means, or improper disclosure or use of a trade secret of another without express or implied consent of the trade secret owner. The holder of a trade secret could seek the following remedies for a misappropriation:

• damages for both the actual loss suffered by the plaintiff and for unjust enrichment of the defendant caused by the misappropriation. Damages may also include the imposition of a reasonable royalty for unauthorized disclosure or use;

• injunctive relief for actual or threatened misappropriation of a trade secret. Under certain exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty; and

• in cases involving the willful and malicious misappropriation of a trade secret, punitive damages, in an amount not exceeding twice that awarded for actual damages and unjust enrichment.

In addition, a court will be able to award attorneys fees in any action involving misappropriation if willful and malicious misappropriation exists; a claim of misappropriation is made in bad faith; or a motion to terminate an injunction is made or resisted in bad faith. The law stipulates that if a public entity or employee is the defendant in any action involving misappropriation of a trade secret, the provisions of the New Jersey Tort Claims Act would supersede any conflicting provision of the bill.

“The success of so many companies in this state depends largely on their ability to keep information about their internal processes secure,” added Scutari. “This law will go a long way toward protecting these businesses, and will place New Jersey on par with 46 other states and the District of Columbia in helping companies to guard their trade secrets.”

The Senate approved the bill 39-0; the Assembly approved the measure 79-0. The law takes effect immediately, except it does not apply to misappropriation that occurred prior to the effective date or to a continuing misappropriation that began prior to the effective date of the law and continued after the effective date of the law.